Appealing an Interlocutory Order

Appealing an Interlocutory Order

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A brief glance at the bankruptcy appellate rules leads many practitioners to believe that such rules are difficult and unmanageable. In fact, the appellate rules intimidate many practitioners, particularly when the appeal stems from an interlocutory bankruptcy court order.

Reviewing courts are reluctant to overlook carelessness in following established procedure, particularly because of jurisdictional implications. On the other hand, some courts will take the specific facts of a case under consideration when determining the propriety of an interlocutory appeal.

For example, in a recent Second Circuit Bankruptcy Appellate Panel (BAP) decision, In re C.R. Davidson Co. Inc., 232 B.R. 549 (2d Cir. BAP 1999), the BAP granted leave to appeal an interlocutory bankruptcy court order despite the movant's failure to follow proper interlocutory appellate procedure. As discussed below, the BAP rendered its decision reluctantly, based only upon the specific facts of the case. Below is a short discussion of the correct procedure for seeking an appeal of an interlocutory bankruptcy court order.

The Rules for Filing an Interlocutory Appeal

Unlike appeals from final bankruptcy court orders, which are taken as of right, an appeal of an interlocutory bankruptcy court order may be taken only with the leave of the district court or BAP. 28 U.S.C. §§158(a)(1) and (3). Therefore, the reviewing court has the discretion to review an interlocutory order, as opposed to a final order.

A final order is one that "ends the litigation and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233 (1945). An interlocutory order, on the other hand, decides some intervening matter that requires some other action to enable the court to adjudicate the cause on the merits. 1 Lawrence P. King, Collier On Bankruptcy ¶ 5.07[1][a]. Thus, while an appeal of a final order may be taken simply by filing a notice of appeal with the bankruptcy clerk within 10 days of the entry of the order, an appeal from an interlocutory order requires the appellant to also file a motion for leave to appeal. Fed. R. Bankr. P. 8001(b). At first blush, these pleadings may seem repetitive. Each pleading, however, serves a different purpose as demonstrated by its specific requirements.


...reviewing courts are generally very strict as to procedural requirements.

The notice of appeal, regardless of whether the order appealed is final or interlocutory, must be in appropriate form and contain the names of all parties and their respective attorneys, along with the prescribed fee. Fed. R. Bankr. P. 8001(a). On the other hand, a motion for leave to appeal must contain (1) a statement of facts necessary to understand the questions presented, (2) a statement of those questions and the relief sought, (3) a statement of why an appeal should be granted, and (4) a copy of the judgment, order or decree complained of and any opinion or memorandum relating thereto. Fed. R. Bankr. P. 8003(a). Thus, while the notice merely provides "notice," a motion for leave to appeal states why the reviewing court should hear the appeal even though it is interlocutory in nature. The reviewing court, usually upon submission and without hearing, then determines whether to grant the motion for leave to appeal.

However, neither the Bankruptcy Code nor the Bankruptcy Rules provide guidance as to the applicable standard for considering whether to grant or deny an interlocutory appeal. Thus, courts generally apply 28 U.S.C. §1292(b), which concerns the appeals of interlocutory orders from district courts to courts of appeals. See, e.g., In re Pappas, 207 B.R. 379, 381 (2d Cir. BAP 1997); Gache v. Balaber-Strauss, 198 B.R. 662, 664 (S.D.N.Y. 1996); In re Den-Col Cartage & Distribution Inc., 20 B.R. 645, 647 (D. Col. 1982).

Under 28 U.S.C. §1292(b), the standard is whether the appealed order involves a controlling question of law as to which a substantial ground for difference of opinion exists, and whether an immediate appeal from such order may materially advance the ultimate termination of the litigation. See In re Pappas, 207 B.R. at 381. Therefore, movants for leave to appeal have a heavy substantive burden, in addition to the procedural requirements.

Consequences for Failing to Follow the Proper Procedure

The distinction between interlocutory and final orders is often blurred. Therefore, litigants often file a notice of appeal without a motion for leave to appeal because of a mistaken impression of finality. Due to this prevalence, Rule 8003(c) provides, in relevant part, that:

If a required motion for leave to appeal is not filed, but a notice of appeal is timely filed, the district court or bankruptcy appellate panel may grant leave to appeal or direct that a motion for leave to appeal be filed. The district court or the bankruptcy appellate panel may also deny leave to appeal but in so doing shall consider the notice of appeal as a motion for leave to appeal...
Fed. R. Bankr. P. 8003(c).

Accordingly, a failure to file a motion for leave to appeal is not necessarily fatal to an appeal. In fact, courts may treat notices of appeal as motions for leave to appeal when the movant acted timely and without bad faith. See Bertain v. Mitchell, 215 B.R. 438, 441 (9th Cir. BAP 1997); see, also, In re Pan Am Corp., 159 B.R. 396 (S.D.N.Y. 1993). At other times, however, the procedural errors are so egregious that the reviewing court must stretch to even consider the motion for leave to appeal. Such was the case in In re C.R. Davidson Co.

In In re C.R. Davidson Co. Inc., 232 B.R. 549 (2d Cir. BAP 1999), the BAP made the difficult determination of whether to grant leave to appeal when both the movant and the bankruptcy court failed to comply with the appellate rules. In C.R. Davidson, certain creditors filed motions for leave to appeal with the bankruptcy clerk. The motions for leave to appeal, however, were deficient in that they contained neither a statement of the facts necessary to understand the questions presented, nor a statement of why appeal should be granted, as required under Rule 8003. See C.R. Davidson, 232 B.R. at 553. To further complicate matters, the bankruptcy clerk failed to submit the motions to the BAP, and instead submitted them to the bankruptcy court. The bankruptcy court, apparently unaware of Rule 8001, proceeded to make findings of fact based upon its knowledge of the case and concluded that the motions should be granted. Id. at 553-54.

On appeal, which coincidentally was from an improperly handled appeal, the BAP admonished the movants for failing to demonstrate their burden under 28 U.S.C. §1292(b). The BAP noted that the "function of the motion for leave to appeal is to explain to the reviewing court why, notwithstanding the historic policy against piecemeal appeals, the order in question should be reviewed immediately." Id. at 554. The BAP, despite citing the procedural errors as "manifest infirmities," and its own reluctance, granted leave to appeal.

The BAP held that based upon the findings the bankruptcy court made, "with the benefit of the knowledge of facts and matters not shared," and because the debtors did not oppose leave, the movants should receive the benefit of the doubt, thereby granting leave to appeal. The BAP, however, stressed that the mandates of Rule 8003 "must not henceforth be ignored." Id.

The BAP was lenient on the movants for their failure to follow proper appellate procedure. Despite their leniency, the BAP made clear that their reason for granting leave was based upon the particular facts of the case as well as the bankruptcy court's error, even though the failure to follow procedure was fundamentally wrong and inexcusable.

The decision in C.R. Davidson thus should not be read as lessening any burdens movants may face, nor disregarding proper procedure. In fact, although C.R. Davidson let an unwary creditor off the hook, C.R. Davidson cannot be read as anything more than a rare example of a reviewing court using its discretion. Consequently, despite C.R. Davidson, the bankruptcy appellate rules should be followed without exception.

Conclusion

Although intimidating to some and confusing to others, the bankruptcy appellate rules are not the ominous rules they first appear to be. Regardless of cases such as C.R. Davidson and Rule 8003(c), reviewing courts are generally very strict as to procedural requirements.

Consequently, when appealing an interlocutory bankruptcy court order, the wise practitioner will follow the appellate rules without variation. Failure to do so may not always end in disaster, but why take that chance?

Journal Date: 
Wednesday, September 1, 1999